As investors' required rate of return on a bond increases, the value of the bond increases also.

Question

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As investors' required rate of return on a bond increases, the value of the bond decreases. This is because the bond's fixed coupon payments become less attractive compared to newer bonds with higher coupon rates. Investors demand a higher yield (return) to compensate for the lower coupon payments, resulting in a decrease in the bond's price.

As Investors' Required Rate of Return on a Bond Increases